Verrica Pharmaceuticals Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial amounts below are in millions of dollars unless noted. Verrica is a dermatology therapeutics company; at quarter-end it had no product sales and reported only collaboration revenue.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $0.182 | $0.214 | $0.219 | $0.645 |
| Research and development | $5.725 | $3.943 | $8.464 | $6.388 |
| General and administrative | $5.937 | $5.173 | $10.256 | $10.291 |
| Operating loss | $(11.616) | $(9.121) | $(18.705) | $(16.531) |
| Net loss | $(10.990) | $(10.168) | $(17.579) | $(18.638) |
| Net loss per share, basic and diluted | $(0.24) | $(0.37) | $(0.40) | $(0.68) |
- Q2 research and development expense rose $1.8 million, primarily due to higher VP-102 manufacturing and development costs; Q2 G&A increased $0.8 million, mainly from pre-commercial activity.
- For the first half, collaboration revenue declined $0.4 million due to lower Torii clinical supply and development activity. R&D increased $2.1 million, principally from VP-102-related costs. G&A was broadly unchanged.
- Interest income was $0.6 million in Q2 and $1.1 million for the first half, versus $0.02 million and $0.04 million, respectively, in 2022, reflecting higher interest rates. No interest expense was recorded in 2023; 2022 included interest on the debt repaid in July 2022. The first-half net loss improved year over year, while the Q2 net loss worsened.
- Six-month operating cash use was $9.3 million, versus $15.5 million in 2022. Financing provided $30.2 million, mainly from the February equity and pre-funded warrant offering, which yielded $30.3 million net. Cash and cash equivalents increased to $55.1 million from $34.3 million at year-end 2022. Investing used $0.07 million.
- At June 30, total assets were $62.2 million, current liabilities $5.7 million, and stockholders’ equity $55.4 million. Accumulated deficit was $181.0 million. The company had no debt outstanding at June 30; it had repaid its prior facility in July 2022.
- Margins are not a meaningful measure of the business at this stage: revenue was limited to collaboration activity, and the filing does not present a product-sales margin.
Business developments, outlook and risks
- After quarter-end, on July 21, 2023, the FDA approved YCANTH (VP-102) for molluscum contagiosum in adults and children aged two and older. Verrica expected to launch in September 2023 and planned to self-commercialize in the United States. No product revenue had been generated through June 30.
- On July 26, 2023, Verrica borrowed $50 million under a five-year senior secured facility with OrbiMed, receiving approximately $44.1 million net of fees and expenses. Up to another $75 million may be available in staged amounts through June 2025, subject to revenue targets. The loan matures July 26, 2028; interest is cash-pay at the higher of SOFR or 4%, plus 8%. The facility includes fees, a warrant for 518,551 shares at $6.0264, and covenants, including a $10 million minimum unrestricted-cash requirement; substantially all assets secure the obligations.
- Management said June cash plus the July loan proceeds should fund planned operations into the first quarter of 2025. It expects significant ongoing losses and expenses, including for YCANTH commercialization and clinical development; additional financing may be needed. Future capital needs depend on launch performance, clinical and regulatory outcomes, and manufacturing and commercialization costs.
- VP-315 Phase 2 Part 2 began in April 2023; the protocol was amended in June to remove Part 3 and expand Part 2. The company expected to complete the trial in the first half of 2024. Timing and design of VP-102 trials for common and external genital warts remained under evaluation; Verrica was also assessing when to begin a VP-103 plantar-wart Phase 2 trial.
- A securities class action alleges failures to disclose manufacturing deficiencies related to VP-102; defendants moved to dismiss the amended complaint in April 2023. The company intends to defend the case; potential damages are unspecified. The filing also highlights product-liability exposure, including risks of local skin reactions, serious or fatal toxicity if YCANTH is swallowed, eye toxicity, and flammability. Disclosed product-liability insurance is $10 million in aggregate and per incident.
- Other key risks include the ability to commercialize YCANTH successfully, achieve revenue targets needed to access later loan tranches, meet debt covenants and service secured debt, and obtain additional financing on acceptable terms. The company reported effective disclosure controls as of June 30.
Important facts for investors to verify
- YCANTH launch timing, sales uptake, pricing, reimbursement, supply readiness, and commercialization costs following FDA approval.
- Whether operating cash use and the stated runway into Q1 2025 remain consistent with actual launch spending and revenue.
- Loan interest, fees, minimum-cash covenant compliance, collateral terms, and the revenue conditions for subsequent draws.
- Progress and timelines for VP-315, VP-102 wart indications, and VP-103, including trial costs and regulatory requirements.
- Developments in the securities litigation and adequacy of product-liability coverage.
- Share dilution from the February 2023 offering and pre-funded warrants, stock compensation, and the lender warrant.